Garrulous central bank Governors (vs Reticent ones..)

Michael Reddell in his new post highlights how New Zealand has had very talkative Governors earlier citing case of Don Brash. This was also due to the central bank law which made the Governor the sole authority behind most matters.

We’ve had talkative new central bank Governors previously.  Shortly after Don Brash took office people took note of the way he was commenting pretty freely on a lot of issues.  Tom Scott captured it this way.

brash 3.png

As the central bank adopts new changes which leads to central bank governor being first among equals. This is because the central bank will now have a MPC and Governor will not be the only voice behind decisions. This will require balancing as one should not move from one talkative governor to several cacophonous voices.

Central banking –  monetary policy and financial stability –  done well should be boring (and not very politically divisive).  The image I often used to use was of the fire brigades at airports.  In an ideal world, if you ever give it a thought you take comfort from knowing they are there, but you don’t expect to hear from them, and hope they are never needed to do much.  The parallel isn’t exact, but I’d argue it is closer to the ideal than a garruous Governor sounding off on every policy question some journalist happens to ask.  If he continues as he is starting, the value of his words will be greatly devalued.  And that would be a shame.

The Governor and the Minister of Finance should also give some thought to how the communications style the Governor is adopting fits with the approach to communications that the Minister announced a few weeks ago.    In that announcement, the Minister indicated that he would be legislating to establish a statutory Monetary Policy Committee, in which the Governor would have a majority of insiders, a role in appointing the outsiders, and in which

The Governor will chair the MPC and will be the sole spokesperson on its decisions.

Other MPC members are not be allowed to give speeches or interviews offering their own perspectives.

The Reserve Bank’s stance has been that if individual members were free to speak (as they are, say, in the US, UK, and Sweden) and are individually accountable for their advice and votes), it would be a “circus”  (though as Bernard Hickey points out, this example is hardly evidence of something wrong with the system).  At present, legally, the Governor is speaking only for himself –  as the sole lawful decisionmaker –  but soon, at least on monetary policy matters, he will become no more than first among equals.  Even at present, there is a real risk that the Bank’s messages on monetary policy and financial stability –  including the crucial ones about the limits of what Bank policy can do –  will be drowned in a cacaphony of comment on all manner of things, that commentators will come to assume it is normal for the Governor to comment on. 

I’d welcome the open contest of ideas, and evidence of a range of views, on the appropriate path of interest rates, or how best to build monetary policy space for the next recession.  I’m not sure it would wise to have one –  let alone six – members of the MPC all offering their thoughts on climate change, the merits of a CGT, or whatever.  It is time for the Governor to stop and reset –  and for the Board and Minister to have a quiet chat, and encourage the Governor to think again.

Like all things in life, central bank governors also find it difficult to balance this “talk” business.

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